Twenty-five years ago the New York Yankees agreed to a massive new television rights contract.
MLB commissioner Bud Selig, the owner of the Milwaukee Brewers in 1989, called the deal “one of the most significant events in the history of professional sports.” A Sports Illustrated headline said it “may change the face of baseball for good, or not so good.”
The deal, worth $500 million over 12 years, certainly changed the face of the Yankees, who hadn’t made the playoffs since 1981. Fueled by their TV deal that paid them nearly $42 million a year at a time when most other teams were receiving less than $10 million, free-spending Yankees owner George Steinbrenner began rebuilding the franchise to a level of success that nearly matched their golden years of the 1940s and ’50s.
The Yankees haven’t finished below .500 since 1993, they missed the playoffs last season for just the second time in 19 years and they have reached the World Series seven times in that span, winning five titles.
Wednesday, the Dodgers officially announced their own groundbreaking TV rights deal with Time Warner Cable, in which the team will launch its own network, SportsNet LA, starting Feb. 25. More than 140 games will be shown live each season, plus nearly all of the club’s spring-training games, until the fall of 2038.
The windfall? An estimated $8.5 billion, which works out to an average of $340 million annually until Clayton Kershaw turns 50.
That annual figure is by far the largest in American sports history — 70 percent bigger than the $5 billion, 25-year deal the Lakers signed with TWC. It’s also nearly twice that of the second-largest baseball deal, that of the Yankees, who in 2013 began a 30-year, $5.6 billion deal (average annual value: $188 million).
TIMES HAVE CHANGED
Dodgers fans started seeing the effects of the deal before it even kicked in, with the team taking on the hefty contracts of Adrian Gonzalez, Carl Crawford, Josh Beckett and Hanley Ramirez in 2012, and reaching the playoffs last season for the first time since 2009.
Indeed, starting the year with tens of millions more in local TV revenue than most other teams is an enviable position to be in. But before fans start getting carried away with thoughts of multiple World Series titles, a la the Yankees, they first need to understand that circumstances are different on several fronts.
“Back when the Yankees got that infusion, there was no luxury tax in baseball and there was also no revenue-sharing,” said Andrew Zimbalist, one of the country’s leading sports economists and an economic professor at Smith College in Massachusetts. “Those are two items that make a very large difference. And the Yankees did it on their own — there weren’t other teams that were getting a bunch of money at that point in time. The Dodgers are not alone among high-money teams.
“Obviously this is going to help, but to think that the Dodgers will do what the Yankees did in the ’90s … I don’t think that’s going to be repeated.”
Local TV rights fees as a whole have jumped dramatically in the past two years, with several teams signing long-term multibillion-dollar deals. The big disadvantage is for a team such as the Atlanta Braves, who in 2007 signed what at the time was a lucrative, 20-year deal with Fox that was worth $25 million a year. That’s a paltry sum in today’s environment, and the Braves are stuck with it until 2026 while other teams reap big windfalls.
The Kansas City Royals are another team with bad timing, locking in to a 20-year deal in 2007 that pays them $20 million a year.
MLB has instituted a payroll luxury tax and revenue sharing in an effort to restore competitive balance between small- and large-market teams.
Under the revenue-sharing plan, roughly 34 percent of a team’s local revenue is redistributed among the 30 teams. The Dodgers argued with the league for many months about exactly how much of their estimated $8.5 billion is subject to sharing, seeing as a large portion of it will come in a lump sum, not as an annual rights fee.
The Dodgers reportedly will keep more than $6 billion of all the money coming in from Time Warner, leaving the Dodgers with approximately $240 million annually, with the other $100 million going to the other 29 MLB teams.
And there’s another potential issue that could affect the overall impact of the Dodgers’ deal: the competitive balance tax. In 1995, when the Yankees made their first playoff appearance in 14 years, they outspent their nearest competitor by 20 percent in player payroll and faced no consequences.
Now, they’d be subject to a hefty tax on the overage, which this season requires any team with a payroll above approximately $189 million to pay a penalty.
There is a downside to the Time Warner deal for Dodgers fans. The ever-increasing challenge of placing a new network on any and all television providers means some fans likely won’t have access, at least right away. The Pac-12 Network, for instance, which launched 16 months ago, still is not broadcast on DirecTV.
Last season KCAL carried 50 telecasts, enough to placate the portion of the team’s fan base not subscribing to cable or satellite TV. Not anymore. Dodgers fans who don’t have Time Warner or a TV provider that agrees to a deal with Time Warner will be able to watch only a handful of games.
Nevertheless, the deal is a tremendous boon to the franchise, and has led to rising expectations, just as it did for the Angels, who committed more than $330 million to Albert Pujols and C.J. Wilson the same week they signed their $3 billion deal with Fox Sports in December 2011, and who added Josh Hamilton a year later.
Of course, it hasn’t yet translated into success in Anaheim. But that doesn’t mean it won’t help the Dodgers.
“I have very high regard for the front office in Los Angeles, but anticipating a duplication of what the Yankees did is unrealistic,” Zimbalist said. “Money can also be a vice, if you don’t use it wisely. I think (CEO) Stan Kasten is a smart guy and I don’t think he’s going to fall into that trap. Still, it’s something to be careful about.”